Centro, GGP Find Ways to Hang On (12/3)
Dec 3, 2008 12:52 PM
Meanwhile in Australia, during Centro’s Nov. 28 general meeting, chairman, Paul Cooper said the company is trying to forgo a short-term extension from lenders and focus instead on a longer-term solution for its debt problems. (A transcript of Cooper’s presentation has been posted on the company’s Web site). As part of these efforts, Centro has proposed converting part of its debt into a “hybrid security.” A Centro spokesperson would not elaborate on the way the security would function, other than noting that it would lower the firm’s interest payments and free up liquidity. At the close of the day on Dec. 2, Centro’s stock was trading at A$0.07 per share, or U.S.$0.05 per share, up from a 52-week low of A$0.04 per share (U.S.$0.03). The stock has lost 99 percent of its value since hitting a peak of A$9.89 per share in February 2007.
“This would achieve a recapitalization of the Centro group and a platform from which to move forward,” said Cooper, who added that “it would not be without significant dilution to the existing shareholders’ investments.”
Overall, Centro may have a harder time than General Growth in extricating itself from its problems, according to Haddigan. The assets in its 104-million-square-foot U.S. portfolio are of lower quality than General Growth’s, he says. And although it’s gotten some bids on its properties, most of those have been from opportunistic buyers looking for steep discounts the company is not prepared to offer, says a Centro spokesperson. In addition, Centro’s cumbersome structure —it invests in various managed funds throughout the U.S., Australia and New Zealand in addition to receiving fees for property management, leasing and development —would make a takeover a complex undertaking, says Haddigan. Add the fact the two most likely suitors for Centro, Kimco Realty Corp. and Developers Diversified Realty, are getting hammered in the stock market and bankruptcy seems even more inevitable, he adds.
In a worst case scenario, Bloomer says, if General Growth and Centro go down they might deepen the downturn in the retail real estate sector by exerting further downward pressure on property valuations. “Our worry is that you have these very large players in distressed situations where they are going to have to sell assets at any price they can get. That can really weigh on the commercial real estate market.”
--Elaine Misonzhnik
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